Did Apple use its online music monopoly to prevent much smaller competitor Amazon from landing music deals? The U.S. Department of Justice is investigating. (Source: Dave's Whiteboard)

Apple's anti-Amazon moves may cost it some big fines

When
it comes to the digital music sales market, services like Amazon or
Zune Pass have made a minor splash, but Apple has long dominated the
market. Over the last two decades, antitrust regulators in the
U.S. and Europe have imposed fines and restrictions on Microsoft and
Intel to try to prevent them from abusing their dominant position in
several markets. However, they have cast a largely blind eye on
Apple's iTunes -- until now.

Antitrust investigators with the
U.S. Department of Justice are conducting an extensive
inquiry into Apple's online music business, interviewing Apple
employees, internet music company employees, and music label
employees according to the New
York Times.
At the core of the investigation is the allegation that Apple applied
pressure to force music labels not to grant Amazon.com access to
exclusive tracks to help grow the online retailer's fledgling music
market.

A previous investigation was conducted several years
back in the European Union, examining Apple's iTunes pricing
practices. The investigation's conclusions were highly
critical of Apple, but did not levy any fines -- unlike recent EU
investigations into Microsoft and Intel.

In March, it
was reported in Billboard magazine
that Amazon.com would be getting certain songs a day before they were
widely released. It would put these songs in a special
promotional section dubbed "MP3 Daily Deal."
According to the article, Apple hated the idea and threatened music
labels that participated. Specifically, it vowed not to sell
the songs featured in the promotion on iTunes -- a much bigger
marketplace.

ITunes
reportedly owns 69 percent of the online music market, according to
the NPD group. The next closest competitor in the online market is
Amazon, which holds an 8 percent share. The remaining 23 percent are
split up among smaller players.

In
2007 Apple had a mere 12 percent of the total music
market (both online and offline), but it recently became the largest
single seller of music in the world, with 26.7 percent of the overall
market.

Daniel L. Brown, an antitrust lawyer at Sheppard
Mullin Richter & Hampton states, "Certainly if the Justice
Department is getting involved, it raises the possibility of
potential serious problems down the road for Apple. Without
knowing what acts or practices they are targeting, it’s difficult
to say exactly how big a problem this is, but it’s probably
something Apple is already concerned about."

Apple now
has dominant positions in several markets -- tablet computing (iPad),
portable music players (iPod), smart phone applications (iTunes App
Store), and online music (iTunes Music Store). Thus it has
leverage to use its position to damage competitors, if it should so
choose.

The new investigation is at least the fourth antitrust
inquiry into Apple. The U.S. government is also investigating
Apple, Palm and others to see whether the companies illegally agreed
not poach each others' employees (Apple's CEO Steven P. Jobs secretly
suggested such a truce, which appears to be illegal). The
government is also investigating Apple's
ban on Flash for the iPhone or iPad and its decision to
block out ports of Flash titles to native iPhone code. And
there's also a pending investigation about whether board
members serving
on both Apple's and Google's boards violated antitrust
laws.

ITunes first launched in 2001 and has long been on the
forefront of the push for legal online music downloads. Apple
has sold over 10 billion tracks on iTunes to date, and has become one
of the biggest revenue sources for the struggling music industry.
Apple also has supported a number of smaller independent artists by
promoting them and giving them tools to expose their work to a
broader audience. Apple also has recently made some steps to
increase competition, such as allowing streaming music services such
as Pandora and Rhapsody onto Apple devices.

Spokespeople for
Apple and Amazon would not comment on the inquiry. Gina
Talamona, a deputy director at the Justice Department, also had no
comment.

Comments

Threshold

Username

Password

remember me

This article is over a month old, voting and posting comments is disabled

quote: While Apple is not likely to go out of business any time soon, it's market cap is currently way over valued based on speculators driving up the price. They are taking advantage of the near constant free publicity Aplle gets from the media lately.

A company comes back from near death in a little over a decade, produces a string of stunningly successful products in markets already full of well established competitors, makes gigantic profits and its share price increase hugely because it gets good publicity?

You did not address the fact that MS made more money than Aplle did during every quarter of those 10 years. By any reasonable analysis, based on that, MS shares are delivering more value to their shareholders. But the perceived "failure" of Vista, even though it is still way ahead of MacOS, just because of the constant bashing of Vista by Mac-friendly media outlets, has led to non-savy investors dumping MS stock.

Also, Office, a huge cash cow, is not as "sexy" as a new iPhone, and doesn't catch the consumer's eye as much. Share prices are often affected by people buying and selling for emotional reasons like that. But with the huge public emracing of Windows 7, coupled with the higher than expected MS earnings, I expect MS shares to climb. Meanwhile, now that the faithful have purchased their iPads, I am betting the sales to slow as the general public fails to see the point of the device. I strongly suspect the climb is over for Apple share prices soon and we will see a downward correction.

Please tell me all about these string of stunningly successful products.

iPod - nothing was establishediTunes - nothing was establishediPhone - mostly BlackberryiPad - nothing is established even to this day. Not even the iPadMac - has been established by PCs and is still established by PCs

So far, the only product from Apple to go into an established market and come out successful has been the iPhone. Everything else, nothing was established or they got nowhere in an established market.